Using the standard deviation of returns as a proxy for the total risk, by how much would the total risk change if you hold either stock X or Y separately versus holding a portfolio of XY that consistent of 60% in X and the remainder in Y? What is the correlation coefficient between X and Y? If there is or there is not any changes, make sure to explain the financial (not the mathematical) logic behind it. X Y 40.00% 40.00% -10.00% 35.00% 35.00% -10.00% Year 2007 2008 2009 Average return = Standard deviation = 21.67% 27.54% 21.67% 27.54%
Using the standard deviation of returns as a proxy for the total risk, by how much would the total risk change if you hold either stock X or Y separately versus holding a portfolio of XY that consistent of 60% in X and the remainder in Y? What is the correlation coefficient between X and Y? If there is or there is not any changes, make sure to explain the financial (not the mathematical) logic behind it. X Y 40.00% 40.00% -10.00% 35.00% 35.00% -10.00% Year 2007 2008 2009 Average return = Standard deviation = 21.67% 27.54% 21.67% 27.54%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Qd 109.
![Using the standard deviation of returns as a proxy for the total risk, by how much would the total risk
change if you hold either stock X or Y separately versus holding a portfolio of XY that consistent of 60%
in X and the remainder in Y? What is the correlation coefficient between X and Y? If there is or there is
not any changes, make sure to explain the financial (not the mathematical) logic behind it.
X
Y
40.00%
40.00%
-10.00%
35.00%
35.00% -10.00%
Year
2007
2008
2009
Average return =
Standard deviation =
21.67%
21.67%
27.54% 27.54%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7810ab07-6748-4d32-b0d1-a5d0d459c5f8%2F49433495-8f3a-4875-97ab-eb1eb6512272%2Fbandzr6_processed.png&w=3840&q=75)
Transcribed Image Text:Using the standard deviation of returns as a proxy for the total risk, by how much would the total risk
change if you hold either stock X or Y separately versus holding a portfolio of XY that consistent of 60%
in X and the remainder in Y? What is the correlation coefficient between X and Y? If there is or there is
not any changes, make sure to explain the financial (not the mathematical) logic behind it.
X
Y
40.00%
40.00%
-10.00%
35.00%
35.00% -10.00%
Year
2007
2008
2009
Average return =
Standard deviation =
21.67%
21.67%
27.54% 27.54%
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